The gleaming lights of Singapore and its booming economy make the region an attractive location for international law firms looking to set up camp here. But as Dominic Carman discovers, worries about the state being over-lawyered threaten to take the shine off this Asian hub

If lawyers can be seduced by their own advocacy, then seduction has become an art form among Singapore's elite. "Singapore is a great place to visit and spend time in: a very advanced economy and so efficient. Everyone thinks things work here so coming here makes sense," enthuses Davinder Singh, senior partner at Drew & Napier.

His counterpart at Rajah & Tan, Eng Beng Lee, points to "The golden age of ASEAN [the Association of South East Asian Nations]; the very plum position of Singapore; and the success of Singapore as a financial hub, a legal hub, a dispute resolution hub, a leisure hub and now ASEAN hub".

For those managing Singapore's independent firms, the seductive power of their advocacy is fully supported by the unambiguous substance of their argument: as Asia's most trade-dependent nation (exports are three times total GDP) – and the most open economy in Southeast Asia – Singapore saw its GDP grow by 5.1% in the latest quarter. From Bloomberg to the World Bank, surveys rank Singapore number one as a place to do business.

No surprise then that an ever-growing regiment of international firms, now exceeding 150, have offices there; 10 of them have licences to practise local law.

From 23 recent applications for Qualifying Foreign Law Practice (QFLP) licences, the successful quartet of Gibson Dunn & Crutcher, Jones Day, Linklaters and Sidley & Austin became QFLPs in April, joining the ranks of Allen & Overy (A&O), Clifford Chance (CC), Herbert Smith Freehills (HSF), Latham & Watkins, Norton Rose Fulbright and White & Case.

Accommodating 4,500 local and 1,100 international lawyers, Singapore may not yet be over-lawyered – New Zealand can boast 11,500 – but many believe it is over law-firmed.

Richard Nelson, Singapore partner at HSF, argues: "It is difficult to see how this market can sustain 150+ international firms. Some will inevitably struggle over time. There is no doubt that Singapore has become much more competitive. The number of international firms here affects pricing."

Home truths

Some local practitioners are palpably defensive. Sarjit Singh, managing partner at Shook Lin & Bok, says: "These firms are unable to offer end-to-end solutions the way Singapore law firms can. They are restricted from appearing before local courts and are still restricted in areas such as real estate."

Indeed, CC was reprimanded in October by Singapore's law minister K Shanmugam for issuing misleading statements in two press releases which conveyed "an inaccurate picture" of its litigation services.

Singh's opposite number at Rodyk & Davidson, Philip Jeyaretnam, adds: "A&O, Latham & Watkins and Norton Rose Fulbright have beefed up. There has been some impact on margins, particularly in our finance and M&A practice."

At Freshfields Bruckhaus Deringer, which re-opened a Singapore office in 2012 after a five-year absence, Singapore partner Stephen Revell says: "The local market is very competitive. All the local firms complain about certain large international firms – not Freshfields – undercutting them for Singapore law work."

Observers suggest that market-leading independent firm Allen & Gledhill has continued to flourish since its tie-up talks with long-term partner Linklaters, and then A&O, both failed. But Rachel Eng, co-managing partner at the WongPartnership, concludes: "As with any firm, if we want to get a deal, we are more prepared to drop our rates, and if we are less prepared to do a deal, then we uphold our rates. So far, the net effect in terms of the personnel on the ground is not much. We don't see many new individuals, just redistribution within the jurisdiction."

As an illustration, several Rajah & Tan lawyers recently moved to Allen & Gledhill, strengthening its arbitration capacity.

At Drew & Napier, Singh highlights the surge in Singapore arbitration (235 cases in 2012 with a value of $3.6bn (£2.2bn) – 200% up on 2011): "Growth has not been at the expense of Singapore firms: our numbers have gone up as well. There is more than enough for everybody. The competition has not hurt us, but it has added a gloss to Singapore being an international arbitration centre.

"That gloss, in turn, has become a magnet for more people to come here to have their disputes resolved: the more that come, we get a share as well. The pie has grown and we now have a larger share of that increased pie."

Freshfields is a strong global arbitration player. "It's early days," says Revell. "The choice of Singapore as an arbitration centre is going into contracts for significant transactions in the region – some will lead to disputes of increasing size and complexity. Singapore's true glory as an arbitration centre is still some years off, but it will definitely come."

Mediation hub

There is also a buzz about the establishment of a Singapore International Commercial Court and an international mediation centre (details to be announced), with the idea being to attract high-value commercial disputes arising from increasing cross-border trade in Asia.

At Rajah & Tan, Lee confides: "My deep concern is that the international firms will localise. They haven't done that yet. They have taken on some good local lawyers, but these offices are being run by partners from New York or London. If they were to go truly local, I would be even more concerned. Once international firms can offer local expertise, connections and knowledge, we're going to be disadvantaged."

Revenues, he says, are going up, "but costs are going up even faster: margins are thinning – it doesn't help if the international firms come in and take the best lawyers".

His strategy has been to regionalise. "We are transforming ourselves from a Singapore firm into a Southeast Asian firm," says Lee, pointing to their offices in Cambodia, Laos, Myanmar, Thailand and Vietnam.

Allen & Gledhill is understood to be considering a similar programme. The WongPartnership, according to Eng, is also looking at "expanding our focus and entrenching ourselves more in South East Asia and ASEAN". However, Drew & Napier and Rodyk & Davidson, which has a Shanghai office, have no such ambitions.

Singapore's recent history of independents being seduced by international firms has not ended happily. Drew & Napier's Singh comments: "The major firms are likely to remain independent. Some firms, including Drew & Napier, went into joint ventures with foreign firms; not all have remained in those relationships. Experience has taught local firms that maybe there are advantages in remaining independent. By doing so, we have seen our practice grow."

Rodyk's Jeyaretnam agrees: "The opportunity for tie-ups with international firms has come and gone. Most of us are looking at how we will go about our business as independent firms, while the international firms are looking to build up their own capability.

"They will certainly be hiring Singapore lawyers, but probably not looking to merge with a local firm. If that was going to happen, it would have happened already."

At Shook Lin & Bok, Singh is bullish: "The Singapore legal market will continue to remain viable and vibrant."

The analysis of Wong-Partnership's Eng is more nuanced: "Our market is at some kind of inflection point. Many law firms are here; right now, we can't tell how many of them are here for the medium-term, near-term or long-term. What will happen in the next three to five years depends a lot on how the economies do in Europe and America. Presently, resources are being channelled into Asia."

She does accept the possibility of future mergers and associations: "There could be more local firms that tie up with international firms because of globalisation."

The picture is confirmed by HSF's Nelson: "Several local firms have been in discussion with international firms about merging."

Doubters will recall the opening lines of the national anthem: "Come, fellow Singaporeans; let us progress towards happiness together."

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Firms with QFLP licences in Singapore

• Allen & Overy
• Clifford Chance
• Gibson Dunn & Crutcher
• Herbert Smith Freehills
• Jones Day
• Latham & Watkins
• Linklaters
• Norton Rose Fulbright
• Sidley & Austin
• White & Case